US Dollar Forecast: Bullish Outlook as Strong U.S. Retail Sales and ECB Easing Drive DXY Higher

U.S. Dollar Index Climbs to 11-Week High Amid Strong U.S. Data

The U.S. Dollar Index (DXY) surged to an 11-week high on Thursday, reaching 103.874, as robust economic data out of the U.S. and increased odds of a Republican presidential victory fueled demand for the dollar. Strong retail sales and declining jobless claims dampened expectations of imminent Federal Reserve rate cuts, pushing the greenback higher against major currencies.

Technically, the index is straddling the 200-day moving average at 103.773. A sustained move over this indicator could trigger another surge into the July 30 main top at 104.799, while a sustained move under this indicator sets up a test of the pivot at 103.144.

At 13:44 GMT, the U.S. Dollar Index (DXY) is trading 103.706, up 0.182 or +0.18%.

Treasury Yields Boost Dollar as Economic Resilience Persists

U.S. Treasury yields rose in response to better-than-expected economic figures, reinforcing the dollar’s upward momentum. The 10-year yield added over 5 basis points to 4.071%, while the 2-year yield climbed to 3.993%. Higher yields reflect a recalibration of market expectations, as retail sales climbed 0.4% in September, beating forecasts, and jobless claims fell to 241,000.

These figures suggest that the U.S. economy remains resilient, with consumer spending and job markets outperforming previous estimates. Analysts note that this strength could limit the scope of future Fed rate cuts, further supporting Treasury yields and the dollar.

Euro Drops as ECB Cuts Rates, Forecasts More Easing

Meanwhile, the euro fell to a two-month low of $1.0834 following the European Central Bank’s (ECB) decision to cut its deposit rate by 25 basis points to 2.35%. The ECB signaled that disinflation is progressing, but ongoing economic weakness may require further easing. Money markets are now pricing in up to three additional rate cuts by March 2025.

The euro’s recent weakness has been exacerbated by diverging monetary policies between the ECB and the Fed. The euro has declined for seven consecutive sessions, with analysts warning that a break below the $1.08 level could trigger further downside pressure.

Market Forecast: Bullish Dollar, Bearish Euro

Given the combination of strong U.S. economic data, rising Treasury yields, and the ECB’s dovish stance, the U.S. Dollar Index is expected to remain strong in the near term. Traders should monitor the euro’s critical $1.08 support level, as further ECB easing could intensify selling pressure. Overall, the dollar’s bullish outlook remains intact as U.S. economic resilience continues to diminish prospects of aggressive Fed rate cuts.